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Volkswagen to consider shutting down factories in Germany for the primary time, a potentially dire predicament. The decision comes amid rising competition from Chinese electric car manufacturers, with the goal of reducing costs.
The German car manufacturer, a giant in the automotive industry, shocked the world on Monday by suggesting that closures of plants within its home country were on the table. In an effort to “future-proof” the corporation, Volkswagen might seek to dissolve a longstanding labor union employment protection agreement from 1994.
Oliver Blume, CEO of the Volkswagen Group, expressed grave concerns about the current state of the European automotive industry, describing it as challenging and serious. He emphasized the entrance of new competitors into the European market, coupled with a toughening economy that threatens Germany’s industrial competitiveness.
Volkswagen, which recently managed to cut €10 billion ($11.1 billion) in costs, is facing a decline in market share in China, its biggest market. Deliveries in the first half of the year dropped by 7% compared to the previous year, while the group’s operating profit decreased by 11.4% to €10.1 billion ($11.2 billion).
The company’s troubles in China can be attributed to stiff competition from local electric vehicle companies such as BYD, which pose a threat to Volkswagen’s European operations.
During an earnings call last month, Blume stressed the need for cost-cutting efforts in various areas such as plants, supply chain, and workforce reductions. He outlined the completion of all organizational steps and emphasized the current focus on cost reduction as the company’s top priority.
Volkswagen employees showcased the new electric Volkswagen ID 3 model with the brand’s updated emblem at the ‘Transparent Factory’ (Glaeserne Manufacturer) production facility in Dresden, eastern Germany. The car is set to be manufactured in Zwickau and Dresden starting in April, then in Wolfsburg in the fall of 2023. The zero-emission ID.3 represents Volkswagen’s first vehicle featuring the new logo.
Meanwhile, European Volkswagen electric car orders have doubled, signaling a positive response to the company’s shift towards eco-friendly vehicles.
Labor unions, which hold significant influence in Volkswagen’s supervisory board responsible for selecting top management, are expected to push back against any proposed cost-cutting measures.
IG Metall, one of Germany’s largest unions, criticized the company’s mismanagement and vowed to protect jobs in response to Volkswagen’s plans.
Thorsten Groeger, the head negotiator of IG Metall, condemned Volkswagen’s proposal as irresponsible and potentially damaging to jobs and company locations. He emphasized the need to resist initiatives that harm workers and stressed the union’s commitment to protecting employees’ interests.
With over 683,000 employees worldwide, including 295,000 in Germany, Volkswagen plays a crucial role in the global economy. Thomas Schaefer, CEO of Volkswagen passenger vehicles, pledged to address the concerns raised by staff representatives and work towards a sustainable restructuring plan for the brand.
Volkswagen warned of an extremely tense situation that cannot be resolved solely through cost-cutting measures. The company faces challenging times ahead as it grapples with the need to adapt to a rapidly changing market landscape while ensuring the well-being of its workforce.
